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How a Whistle-Blower Conquered Countrywide

WHAT does it take to hold your powerful bosses accountable if they try to bully you out the door?

Documents, e-mails, a former deputy district attorney as your lawyer — and a never-say-die approach.

Such was the lesson learned by Michael G. Winston, a former executive at the Countrywide Financial Corporation. Mr. Winston spent three years in a legal battle against Countrywide, the once-mighty mortgage giant, and its current owner, Bank of America, contending that he was punished and pushed out for not toeing the company line. On Feb. 4, he won: a jury in California awarded him $3.8 million in damages.

“It is the littlest of Davids beating the biggest of Goliaths and taking two of them on at once,” Mr. Winston said. “This is the story of somebody who tried to set a company right. But it was frightening to them for me to shine the light from the inside out.”

Mr. Winston’s story provides a glimpse into how business was done at Countrywide at the height of the subprime craziness — and how assiduously Angelo R. Mozilo, the company’s fallen leader, worked to quash dissent in the ranks. Mr. Winston had the audacity to question Countrywide practices. Mr. Mozilo was not pleased and, before long, Mr. Winston was marginalized and later dismissed.

Mr. Winston, a prominent executive in the field of organization management, is a rarity among corporate whistle-blowers. Most of them get run over by their former companies. A fascinating detail in his case: after providing to the opposition his list of witnesses, which included former colleagues who had also been let go by Bank of America, the bank hired several of them back. Then they testified against him.

Mr. Winston’s lawyer was Charles T. Mathews, a former prosecutor in the Los Angeles district attorney’s office. “This case is about holding these scoundrels accountable and it is absolutely vital that these people be brought in front of a jury,” Mr. Mathews said. “They hired these huge law firms with unlimited budgets, but when plain, ordinary citizens see the evidence and hear the facts they are repulsed by what these people did.”

The jury heard from an array of former Countrywide executives, including Mr. Mozilo, in a rare courtroom appearance. David Sambol, Countrywide’s former president, also testified.

Sam Usher, 73, was a juror on the case. A former human resources executive at General Motors, he is a program manager for addiction treatment centers at several hospitals in Los Angeles. Asked about the trial, Mr. Usher said the witnesses for Countrywide and Bank of America were unpersuasive.

“There was an air of arrogance about them,” he said. “The attorneys for the plaintiff caught most of them in little lies that cracked their credibility. Meanwhile, Mr. Winston’s witnesses had credibility and the documentation kind of supported his testimony.”

Mr. Winston did not win on all his claims. For example, the jury rejected his contention that Countrywide had reneged on an oral agreement to provide him with substantial stock awards in future years after he agreed to a relatively modest starting salary.

But the jury voted 9 to 3 that Bank of America’s dismissal was motivated by two of Mr. Winston’s actions — both essentially refusals to play the game that Countrywide wanted him to.

“The acquisition by Bank of America provided an opportunity to drop him off the cliff,” Mr. Usher said.

A spokeswoman for Bank of America said the bank would ask the trial court to reverse the jury verdict and enter judgment in the company’s favor. “We believe that the jury’s verdict finding liability on the wrongful-termination claim is not supported by any evidence, let alone ‘substantial evidence’ as is required by law,” she said.

MR. WINSTON joined Countrywide in May 2005, when the lender was riding the mortgage wave. He was hired as an executive vice president in the leadership development area to help Countrywide grow even bigger and groom better managers. His boss, he recalled, told him that the lender wanted to become “Goldman Sachs on the Pacific.” Soon after, he was promoted to managing director and enterprise chief leadership officer.

Mr. Winston’s career experience included successful stints at Motorola, McDonnell Douglas and Lockheed. He also worked previously as the global head of worldwide leadership and organizational strategy at Merrill Lynch in New York but resigned from that position in 2003 to take care of his parents, who were terminally ill.

It wasn’t long after he joined Countrywide that Mr. Winston began to worry about its business strategy, he said. He still recalls an episode from late 2005 that raised red flags for him. He found himself parked next to a man in the Countrywide lot whose car had vanity plates that read, “Fund’Em.” “I said: ‘I’m not familiar with that expression. What is this about?’ ” Mr. Winston recalled. The man replied that the term described the company’s growth strategy for 2006 — to fund all loans. “I was brand new and I said, ‘What if the person has no job?’ ” Mr. Winston said. The answer: “Fund ’em.”

Photo

“It is the littlest of Davids beating the biggest of Goliaths,” Michael Winston said of his court victory against Countrywide.Credit
J. Emilio Flores for The New York Times

“What if the person has no assets?”

Again: “Fund ’em.”

Mr. Winston said he immediately relayed his fears about what he saw as an anything-goes strategy to Drew Gissinger, chief production officer of Countrywide Home Loans. “I told him that you need to focus on customer satisfaction, on the quality of the loan portfolio and on building leaders who would focus their people on that,” Mr. Winston said. “I wrote him a very comprehensive proposal on how to reward people properly.”

Then, in late July 2006, nine days after he was promoted to managing director, something strange happened at the office building where Mr. Winston and his colleagues worked. In his description of the event to the jury, he was sitting in his office when orange-pink vapors and droplets of who-knows-what dripped on him. He became nauseated and left the building with his employees.

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“I returned the next day, after I had some testing and went around to find out how my guys were,” he said. “People were not only sick but frightened about working in the building.”

He reported the situation to his superiors; many workers began to report symptoms of illness. In early August, Mr. Winston asked a buildings official what had been done about the problem. He said he was told it was a one-off event. Case closed.

“I went to my office closed the door and called Cal OSHA,” Mr. Winston said, referring to the occupational safety agency in the state. (Cal OSHA produced a report, and Countrywide said it addressed the problem, but Mr. Winston said he never learned the details.)

Soon, Mr. Winston said, his budget was frozen. He began to be uninvited to meetings. He was forced to relocate his office four times in seven months.

In September 2006, he told his boss, Leora Goren, the head of human resources, that he was fearful of losing his job and that he had consulted a lawyer.

Mr. Winston’s final mistake for Countrywide came two months later. As he tells it, he refused to misrepresent Countrywide’s corporate governance practices in a report to analysts at Moody’s Investors Service, the ratings agency.

On Nov. 20, Mr. Winston received a copy of an unpublished report on Countrywide by Moody’s. It expressed concerns about executive pay and succession planning at the lender. “We view governance as a credit challenge that constrains future ratings improvement at Countrywide,” the report said.

Mr. Winston said that Countrywide scrambled to try to refute Moody’s take and that Mr. Sambol, Countrywide’s president, asked him to write a report countering the analysis and providing chapter and verse on the extensive succession planning at the company.

Trouble was, Mr. Winston had never seen that extensive succession plan. In fact, as with so many subprime loans, he never saw any documentation at all, even after he asked for it, he said. He testified that he told Mr. Sambol he could not do the report. “I’m not your guy,” he told him.

BY now, Mr. Winston had a target on his back. On Jan. 24, 2007, Mr. Mozilo wrote an e-mail to Ms. Goren, the head of human resources whom Mr. Winston had told about hiring a lawyer for himself.

“As I expressed to you, I am concerned about the motivations and overall attitude and demeanor of Michael Winston,” Mr. Mozilo wrote. “I want him terminated effective immediately.”

Testifying before the jury, Mr. Mozilo said he wanted Mr. Winston gone “because I concluded that he was not the type of individual that I wanted at a senior level at the company.”

But Ms. Goren advised Mr. Mozilo against the firing. “I strongly believe that terminating Michael would not be in the best interest of the company,” she replied in an e-mail to him, “as doing so would cause us the loss of an extremely talented, albeit eccentric individual.”

Mr. Winston remained at Countrywide with two people reporting to him, down from 178 previously. When Bank of America took over in 2008, he was let go.

Today, Mr. Winston, 60, is hoping to go back to work.

“I want to do my part to promote vision-driven, values-based leadership that is a force for good,” he said.

A version of this article appears in print on February 20, 2011, on Page BU1 of the New York edition with the headline: How a Whistle-Blower Conquered Countrywide. Order Reprints|Today's Paper|Subscribe